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While almost every state faces revenue shortfalls due to the recession, North Dakota is one of the few to escape relatively unscathed, as a result of its oil revenue. In fact, North Dakota’s recently passed budget includes nearly half a billion dollars in tax breaks and increases general fund spending by more than 20 percent over the next two years.
The $489 million in tax reductions includes $341.8 million in local property tax relief, $120 million in personal income tax reductions, and $25 million in corporate income tax reductions.
Unfortunately, the $120 million in personal income tax reductions will not benefit those most in need. According to an analysis by the Institute on Taxation and Economic Policy, two-thirds of the income tax reduction will go to those making over $96,000, while only 5 percent will go to those making under $40,000.
The average tax cut for the richest one percent, those with incomes over $414,000, would be nearly $4,700. Only a third of those making under $24,000 will see any tax cut at all, and those who do will only receive about $18 over one year.
Republican lawmakers favored this regressive approach, even though North Dakota already has an extremely regressive tax system. As ITEP has noted before, taxpayers in North Dakota making less than $21,000 pay an average of 9.4 percent of their income in taxes, while those making over $406,000 pay only 4.3 percent of their income in taxes.
The North Dakota Economic Policy Project argues that a better approach to income tax reduction would have been for the state to enact a refundable state Earned Income Tax Credit (EITC). A state EITC equal to 10 percent of the federal EITC would only cost $17 million and would be specifically targeted to North Dakota’s low-income working families.
Ryan Taylor, the Democratic Minority Leader of the North Dakota Senate, also takes issue with cutting corporate income taxes by $25 million while many public services did not receive significant increases. In an op-ed for the Grand Folks Herald, Taylor asked, “Do we want to be a state that gives $25 million to corporations and countless more millions in the future by ignoring loopholes for oil companies, while leaving our children uninsured?”